Worldpay charges, disclosed in fine print, anger small U.S. merchants

By David Henry
NEW YORK, Aug 23 (Reuters) - Mark VenHuizen, the comptroller
of a family business which sells parts for boat engines in
Florida, says he has complained three times to Worldpay Inc
since 2016 for tacking on extra fees to process his customers'
credit and debit card payments without clearly telling him about
it.
The first two times when he complained after noticing larger
costs on his billing statement, the additional fees disappeared
for a few months. Last August, he discovered Worldpay had added
a 0.3% charge on top of an initial fee of 0.2% on many
transactions, boosting his bill by hundreds of dollars.
"It has been so frustrating with them," VenHuizen said.
In the course of several interviews and email exchanges over
the past two months, Worldpay told Reuters it had notified
VenHuizen in his June 2018 statement that fees for many
transactions would increase by up to 0.8%. That happened for
transactions such as when his customers made payments using
cards that offer spending rewards like cashback and travel
points. The company also referred to VenHuizen's original
agreement, where in fine print it says it may charge up to 1.95%
for those types of transactions.
It said such markups are tied to risks and costs associated
with individual businesses and depend on factors such as the
type of merchant, how often it takes cards online, and whether
the cards tend to have high credit limits.
"Worldpay's fees are properly disclosed," the company said.
Payment processors like Worldpay are a key part of the
plumbing for everyday non-cash transactions such as credit and
debit card swipes at grocery stores and restaurants. They gather
transaction information and send it through the card networks
such as Visa and Mastercard to the card issuers, which are
typically banks. They also take on some risk as they vouch to
card companies for the merchants' ability to cover refunds on
bad charges.
Processors were paid about $20 billion for their work in
2018, according to industry publication The Nilson Report.
Worldpay, the largest U.S. processor by transaction volume,
was bought by Fidelity National Information Services Inc
for $50 billion in a deal that closed on July 31.
In a statement sent this week to Reuters for this story, FIS
said, "As part of the integration activities for our recent
acquisition of Worldpay, we are currently reviewing Worldpay's
sales and billing practices to ensure they are fair and
transparent."
The company added, "We take any concern over unfair
practices very seriously."
Interviews with three merchants, several competitors and
five former Worldpay salespeople, as well as a review of billing
statements sent to more than a dozen merchants, show that
Worldpay tells merchants upfront that it will collect two
different kinds of fees on card transactions. Those are a fee
for its own services, and charges levied by the card networks
and issuers that it collects and passes on.
In fact, the processor adds a third fee for some small
merchants that is disclosed in the fine print - a markup to the
card network and issuer charges, these people said. In its
billing statements, it mixes that markup with the card company
charges and does not show the specific amount it has added,
according to the people and the documents.
As a result, when small U.S. businesses, such as VenHuizen's
company, Jerry's Marine Service, sign up with Worldpay, they at
times end up paying hundreds of dollars more for the service
than they realize, the billing statements show.
"It is very confusing to try to interpret one of these
billing statements," said Anthony Barnett, who owns two
restaurants in the U.S. Northeast. "It is all in the fine
print."
Barnett said he switched processors earlier this year after
Worldpay added a 0.65% markup to his statements for one
restaurant and then offered to reduce his charges by roughly
$2,700 a month when he complained.
Worldpay said it had not increased its rates for Barnett's
restaurant "in nearly two years."
SALES PRACTICES
In contrast to Worldpay, JPMorgan Chase & Co's
payment processing unit, for example, said it separately
discloses card company costs and its fees in statements to
merchants in plans that compare with Worldpay's. Square Inc
offers flat rates that cover all charges.
Worldpay, which commented to Reuters before its sale to FIS
closed, said that its statements and pricing were not
"significantly different than industry practices."
Worldpay declined to provide the number, or proportion, of
its merchant customers who are assessed a markup. Nor would it
quantify the additional revenue it brings.
Nearly 200,000 merchants were allegedly overcharged by the
company for such markups or other extra fees, according to court
documents filed in 2017 when Worldpay settled a lawsuit. The
suit was brought by class action lawyers representing merchants
who claimed the company had misled them.
Worldpay settled the lawsuit for $52 million. "While we
believe we had meritorious defenses to the claims, we settled
the matter two years ago to avoid potentially protracted and
costly litigation," the company told Reuters.
FIS said it was engaging a third party as part of its review
of Worldpay's practices. "We are committed to ensuring that any
historic issues are addressed going forward," it said.
Sales practices of the payments industry fall under the
purview of the Federal Trade Commission, which is charged with
preventing "unfair or deceptive acts or practices" in commerce.
Two former agency lawyers said the agency expects consistent
language in marketing and sales agreements.
But the FTC has brought only a handful of cases against
processors over the past two decades, leaving practices largely
unchallenged.
An FTC spokesman declined to comment.
DIFFERENT MARKUPS
Reuters reviewed monthly Worldpay billing statements with
markups issued to more than a dozen small merchants between
January 2018 and April 2019. Some were provided directly to
Reuters by the merchants and others came through industry
sources.
Those businesses were paying markups of at least 0.2% on
many credit card transactions. A vitamin shop in Colorado was
paying an extra 0.95% on many of its transactions. A dentist in
Illinois was paying 1.85% more but a dentist in Alabama was
being marked up 0.65%.
For each type of transaction, it took five calculations,
including a reference to rates from complex card industry
tables, to figure out how much the merchants were being charged
extra.
"There is no way for a merchant to know what they are going
to pay," said Ben Dwyer, who writes about the industry and makes
money selling processing services for selected Worldpay
competitors.
In VenHuizen's case, Worldpay removed information showing
card company charges when it added its markup. In his July 2018
statement, the company had shown specific rates for what it was
collecting on behalf of card companies. When Worldpay added its
markups in August 2018, the rate disclosures disappeared from
his statement.
Worldpay said it notified VenHuizen in advance and its
charges were proper.
The five former salespeople, who worked at Worldpay until
2017, said they did not tell customers about the possibility of
extra fees when they signed them up, in part because they had an
incentive to close on sales quickly. Salespeople were expected
to sign 60 to 80 new merchants each month, three of the sources
said, and lower fees helped do that.
Worldpay told Reuters it does not offer low introductory
rates to win customers.
Worldpay used pricing tables to include about 20 different
levels of markups, three of the former salespeople said. The
tables added markups in increments of 0.05% to 0.10% and topped
out at an extra 1.85%, the three sources said.
Some customers, including ones who licensed sales software
from important Worldpay business partners, were exempt from
markups, two of the former salespeople said.
(Reporting by David Henry in New York, Editing by Paritosh
Bansal)
2019-08-23 17:23:55

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